Ahead of the UK prime minister’s visit to Trump, what are the impacts of potential tariffs on UK households?
Ahead of Starmer’s visit to Trump on Thursday, there have been a lot of conversations on possible tariffs on the UK and the entire European continent since the US president assumed power in January. Trump has often discussed the possibility of imposing tariffs on the European continent as part of plans to grow the US economy and protect jobs. In this article, however, we examine the impact that tariffs could have on UK households and individuals if a tariff is imposed on the UK.
Firstly, tariffs are taxes or duties a government imposes on imported or exported goods. They regulate trade, protect domestic industries, and generate revenue. In summary, tariffs are trade tools with economic and political implications, influencing prices, industries, and international relations.
A study by the Centre for Inclusive Trade Policy (CITP) at the University of Sussex estimates that if these tariffs are implemented, the UK could experience a £22 billion reduction in exports, equating to a 2.6% decrease. This decline would represent approximately 0.8% of the UK's Gross Domestic Product (GDP). The sectors anticipated to be most affected include fishing, petroleum, and mining, with potential export reductions of around 20% in each.
Sector-Specific Implications
Fishing Industry: The fishing sector could see a 21.5% decrease in exports due to heightened tariffs, significantly impacting coastal communities reliant on this trade.
Petroleum Products: Exports of coke and refined petroleum products might decline by 20.9%, affecting both large-scale producers and the broader energy market.
Mining Sector: A projected 20.4% reduction in mining exports could decrease investment and lead to potential job losses within the industry.
Conversely, some sectors like textiles and clothing might experience marginal benefits. The substantial tariffs on Chinese goods could make UK products more competitive in the U.S. market, potentially leading to a 1% increase in exports for these industries.
As individuals, however, how will these affect you?
Impact on prices of goods and services
Prices of goods and services will rise if the US proceeds with tariffs on the UK
The National Institute of Economic and Social Research (NIESR) projects that if the proposed tariffs are enacted, UK inflation could rise by 3 to 4 percentage points over the next two years. This surge in inflation would directly affect the cost of goods and services, leading to higher prices for consumers. This is important as consumers are still battling a cost-of-living crisis that has persisted since the pandemic.
Effect on Household Expenditures
Increased tariffs often result in higher import costs, which businesses may pass on to consumers. While specific figures related to the current tariff proposals are not yet available, previous analyses provide insight into potential impacts. For instance, during the Brexit transition, studies estimated that UK households could face up to £1,000 per year in additional costs due to increased trade barriers and tariffs. Although the current situation differs, it is reasonable to anticipate that similar mechanisms could lead to noticeable increases in household expenses.
Economic Growth and Employment
NIESR warns that if the tariffs are implemented, the UK economy could experience a reduction in growth by 0.7 percentage points in the first year and 0.5 percentage points in the second year. This slowdown may reduce business investments and potential job losses, further straining household incomes.
The Trump administration's proposed tariffs are poised to substantially impact UK households. Anticipated outcomes include increased consumer prices, reduced economic growth, and heightened family financial pressures. Staying informed and preparing for potential changes in the economic landscape will be crucial for households to navigate the forthcoming challenges.
What are your thoughts?
